Bramwell's Lunch Beat: 2014 Could Be Taxing For Many

Cull the stupid tax breaks
The editors of Bloomberg wrote an opinion piece on January 5 about the annual ritual of lawmakers eventually extending dozens of tax breaks that expire at the first of the year.

“The just-expired shelters – for Hollywood filmmakers, rum producers, and dozens of other constituent groups – are a showcase for why the US tax code is so mind-numbingly complicated and overdue for simplification,” the article stated. “There are fifty-five breaks in all, costing taxpayers about $50 billion annually.”

The best remedy, according to the Bloomberg editors, is a “top-to-bottom tax-code housecleaning.”

“Instead of granting special-interest favors through the annual pay-to-play ritual, throw out the thousands of exclusions, credits, and deductions – then lower rates for individuals and corporations alike,” they wrote.

What you need to know about taxes in 2014: Expired tax breaks, Obamacare penalties & more
“Tax season opens in twenty-six days. And here’s my big prediction: A lot of taxpayers will be taken by surprise,” Forbes contributor Kelly Phillips Erb wrote on January 5. “Despite all of those ‘no new taxes’ type promises, tax bills are expected to edge higher for a number of taxpayers for the 2013 tax year. And 2014 holds even more surprises.”

For example, Phillips Erb wrote that this year ushers in new deadlines for the Foreign Account Tax Compliance Act (FATCA).

“FATCA withholding on new accounts will become effective July 1, 2014,” the article stated. “That reflects a six-month delay from the previous January 1, 2014, deadline. 2014 will also mark deadlines for the completion of new due diligence and registration requirements – bound to cause confusion and irritation for international taxpayers.”

Deutsche Bank, BDO Seidman sued by Lane over tax shelter
Karen Gullo of Bloomberg reported that a lawsuit was filed on January 3 against Deutsche Bank AG, BDO Seidman LLP, and an ex-BDO Seidman partner over claims they designed a fraudulent tax shelter that caused losses for a former COO of a Fortune 100 software company.

“The tax shelters described in the lawsuit are similar to those used by Ray J. Lane, the former Oracle Corp. COO and president and former Hewlett-Packard Co. chairman, who reached a $100 million agreement with the IRS over a tax shelter called Partnership Option Portfolio Securities, or POPS,” Gullo wrote. “Lane used POPS to shield $250 million of income through what tax regulators ruled were ‘sham’ transactions.”

The plaintiff, R.J. Lane, identified as a California resident in his complaint with no mention of his former employer, said he placed his trust in BDO Seidman senior tax partner Michael Kerekes, who advised him in the POPS strategy, the article stated. Kerekes, who worked as a partner at BDO Seidman’s Los Angeles office from 1998 to 2008, pleaded guilty in 2008 to conspiracy to defraud the United States and tax evasion, Gullo reported.

Abolish the corporate income tax
In a contributed editorial to the New York Times, Laurence Kotlikoff, a professor of economics at Boston University, wrote: “In recent decades, American workers have suffered one body blow after another: the decline in manufacturing, foreign competition, outsourcing, the Great Recession, and smart machines that replace people everywhere you look. Amazon and Google are in a horse race to see how many humans they can put out of work with self-guided delivery drones and driverless cars. You wonder who will be left with incomes to buy what these robots deliver.

“What can workers do to mitigate their plight?” he asked. “One useful step would be to lobby to eliminate the corporate income tax.”

Tax break for Roth IRA conversion attracted 10 percent of high earners
Richard Rubin and Margaret Collins of Bloomberg wrote on January 4 that according to the IRS, conversions from regular IRAs to Roth retirement accounts increased more than nine times in 2010, rising to $64.8 billion from $6.8 billion in 2009.

This marked the first time Roth conversions were greater than contributions. According to the IRS, conversions were especially common among IRA holders with annual incomes exceeding $1 million. More than 10 percent of them converted to a Roth account, the article stated.

No accounting for government cost
In an “Other Voices” essay published by Barron’s on January 4, KStone Partners President and CEO Joseph Marren, who is an accountant and a lawyer, explains why he believes the government’s financial reporting is misleading and how the US Supreme Court can restore accountability.

How the Cloud will be capitalized
Scott Bergquist, central US division manager for Silicon Valley Bank, wrote an article for CFO.com on how SaaS (software as a service) and IaaS (infrastructure as a service) vendors are going to be capitalized and financed to enable the next leap in Cloud computing.

“Financing Cloud-based businesses can be difficult through traditional means,” the article stated. “That’s because recurring models make a trade-off at inception: a lower-priced perpetual revenue stream with higher long-term value, versus a traditional revenue stream with higher initial price but lower long-term value.

“The recurring revenue model can be worth more over time and require less capital to fund,” Bergquist continued. “But fixed assets, front-loaded expenses associated with client acquisition, and on-boarding put demands on the internal cash flows, debt, and equity needed to support growth.”

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